The economic impact of Seattle’s tax controversies: Hard to calculate, but critics say damage has already been done.

Prediction is very difficult, especially if it’s about the future,” famously said physicist Nils Bohr. It’s a useful reminder that we should always treat economic forecasts as best guesses by people trained to guess well. So when asked about the possible effect of the Seattle head tax (not a done deal, as we’ve written), economist Steve Lerch, head of the state Economic and Revenue Forecast Council, wisely demurred.

The Lens reports,

The new job tax became a topic of discussion at the council’s May 29 meeting. The latest economic outlook describes a vibrant state economy, but doesn’t account for Seattle’s latest tax ordinance.

After inquiring about it, State Treasurer Duane Davidson added: “I know it’s rather difficult to do, because we don’t know what the impact is.”

That view was shared by ERFC Executive Director Steve Lerch. Although the job tax “would have been certainly worth calling out as a forecast risk,” he also said that “impacts from that would not be things that would happen overnight, and they would be gradual. The Seattle economy is so strong that it might be really hard to disentangle….”

The Lens also notes a recent report by the rating agency Fitch, which included a warning of possible long-term negative consequences.

…the Fitch report cautions that “the city’s revenue framework and overall credit quality could be affected longer term if the tax increase leads corporations to decide to move out of or not to locate in the city. However, any impact would be felt marginally over many years and would thus be difficult to distinguish from other rationales for corporate decisions.”

Another story in The Lens includes more general observations on Seattle’s recent tax controversies, suggesting some damage has already been done. In a discussion of Seattle’s income tax, Madrona Venture Group Managing Director Matt McIlwain, a leader against the high-earners income tax Initiative 1098, said,

Although a King County Superior Court judge ruled against the city in November, the city is appealing to the State Supreme Court in the hopes sympathetic justices will overturn 80 years of jurisprudence holding that income is considered property under the state Constitution and thus subject to the uniformity clause.

Yet regardless of how the court rules, the damage to the city’s business climate has already been done, McIlwain said, pointing to Amazon’s decision last year to build its second headquarters outside Washington. “Actions have consequences – like your largest employer…sending some pretty strong signals since the Seattle income tax was passed, that they’d had enough.”

In his weekly column, retired AWB president Don Brunell points out that reputations matter.

The battle in Seattle over the city council’s imposition of a head tax on large companies is generating disparaging labels which local elected leaders likely will come to regret.

As a mayor, the last things you want are “anti-business” or “job killer” red letters stamped on your city’s investment opportunity portfolio…

The bottom line is investors don’t want to locate where they are unwanted or can’t afford to operate. Unfortunately, as Massachusetts learned bad labels are written with indelible ink which fades slowly.

While it’s surely hard to calculate the effect of the Seattle head tax with precision or accuracy, it’s safe to forecast that the effect will not be positive.